Is There Still Room To Profit With Halozyme?

It was January of 2013, and Halozyme (NASDAQ:HALO) shares hovered around $7.00 making up their $750 million Market Cap at the time. Now trading at $15.85, a Market Cap of $1.79B and on the top end of their 52-Week range ($5.03 - 16.36), those buying in at the $7.00 range look smart, or lucky. But now what happens?

Halozyme is a pharmaceutical firm that develops and commercializes products that target the extracellular matrix for the diabetes, oncology, dermatology, and drug delivery markets. The company's approach is novel, as its development of subcutaneous biologics that enable medication to be introduced into a patient's body via skin injections versus a conventional intravenous drip (IV)method.

Well known are the company's key partnerships with Roche (OTCQX:RHHBY) ,Pfizer (NYSE:PFE) Baxter (NYSE:BAX), ViroPharma (VPHM) and Intrexon (NYSE:XON). Those partnerships are using HALO's unique Enhanze technology to apply them to biological therapeutics, including Immunoglobin, Herceptin, MabThera, Cinryze and alpha 1-antitrypsin.

Promising Pipeline

Also well represented is the company's pipeline. Hylenex a unique recombinant that enables the delivery of injectable biologics as monoclonal antibodies, small molecules and fluids during a period of alteration of tissues and glands. It actually breaks down the structural protein, hyaluronan. Other pipeline entities are Analog Insulin PH20; Diabetes, PEGPH20; Pancreatic Cancer and HTI-501; tissue scarring. All are Phase 2 clinical.

The Delivery System

The key with Halozyme's enzyme is of course that potentially thousands of drugs and treatments that would normally be injected intravenously (IV) can be administered subcutaneously (SC). This delivery system is significant on a number of fronts, including but not limited to lower administration costs, life quality factors and convenience for patients, and increases in efficacy. With milestone payments from collaboration projects intact to keep the lights on and fund additional R&D, the future looks bright.

Recent Surge

Apparently investors, including small-cap biotech investors Baker Brothers think so. They have increased their position in HALO to a value of over $7 million dollars holding nearly 7% of the company's stock. A recent upsurge of the stock price of over 16% and ramped up trading volume, demonstrates the positive interest. Halozyme also announced that Dr. Helen Torley would replace Gregory Frost as CEO of Halozyme, an apparent positive development. Dr. Torley's resume includes stints at Onyx and Amgen (NASDAQ:AMGN).

Catalyst events ahead

Likely there are future catalysts upcoming in 2014-2015 that will propel price further. At least one or more Phase 3 trials are likely based on the company's list in their pipeline. With Dr. Torley now at the helm, it is not to hard to imagine a possible significant partnership or something bigger in the making. She most recently was Executive Vice President and Chief Commercial Officer at Onyx Pharmaceuticals, a subsidiary of Amgen. Amgen acquired Onyx for $125 per share in October of 2013, in a deal valued at $9.7 Billion. While at Onyx, she also handled the oversight of Onyx's successful pipeline, something investors may be able to read into as a very positive influence.

Collaboration agreements are hugely significant, especially when they are with big players with deep pockets. This nets out to be what every biotech needs....Revenue streams. Halozyme's portfolio of collaborations is rich and growing. Halozyme has surpassed the often difficult biotech stigma of that of the science-lab operation to become a commercial driven operation. As mentioned prior the product development pipeline includes partnered programs with Roche, Pfizer, Baxter, ViroPharma and Intrexon for ENHANZE™ Technology. Halozyme uses these programs to essentially validate their technology, a move designed to not only speed development, but to reduce clinical development costs and generate revenue streams. Milestone payments from these partnerships are what keeps the lights on and operations flowing. Sales royalties also play a role. Halozyme's management essentially uses these milestone payments and royalties to fund the development of their proprietary products. This is a solid move by management and has proven effective.

Third Quarter 2013 (Q3-2013) revenue was reported at $16 million, up from $14.5 in Q2-2013, and from $11.8 in Q1-2013. Their novel enzyme delivery system has the potential to literally change how all pharmaceuticals are administered to the human race. That's big, and big enough to be a very attractive acquisition target. At $15.00 with a $1.79B Market Cap, a deep pocketed suitor could arguably tender an offer for the likes of $25.00-$35.00 and still come away with a deal considering the pipeline and the significance and value of the delivery system itself. Big Pharma players like to wait for Phase 3 clinical trials and results to act, and that could happen, pushing a potential acquisition to 2015-2016. But waiting could be costly, and acting sooner than later, could save over a billion of required investment as anticipated clinical trial results spur further upsurges of price.

Is there still room to profit with Halozyme? You bet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.